QATAR. Qatar is seeking contracts to sell liquefied natural gas to Asia for as many as 20 years as the prospect of booming supplies from Australia, the US and Africa raises the likelihood of a slide in prices.
Ras Laffan Liquefied Natural Gas Co., a venture between Exxon Mobil Corp. (XOM) and the Qatari state that’s the biggest supplier to India, agreed last month to boost shipments to South Korea by 2 million metric tons a year in the next two decades.
The company signed a similar commitment with a Taiwanese buyer in December. Qatar Liquefied Gas Co., the world’s largest LNG exporter, said March 1 it’s negotiating a multiyear sale of the fuel to Pakistan.
Qatar, which produces more LNG than any other country, is seeking to complete larger and longer export deals amid a surge in global supplies that’s encouraging buyers to call for an end to costing the fuel based on oil prices.
The world may face an LNG “glut” in the next eight years as production from hydraulic fracturing, or fracking, of shale deposits swells inventories, Sanford C. Bernstein & Co. said in a February 14 report. U.S. gas traded at the lowest level in 10 years on January 23, while Brent crude jumped to a 3 1/2-year high on March 1.
“It’s better to lock in oil-indexed prices today than have competitors from 2019 offering a price based on the U.S. spot market,” Thierry Bros, a senior analyst at Societe Generale SA in Paris, said in an e-mail February 29. “Qatar can no longer sell LNG to the North American market, as was originally planned, after the U.S. shale-gas revolution.”
Gas at Henry Hub in Louisiana fell to US$2.23 per million British thermal units on January 23, the lowest price since 2002, and traded at US$2.33 today. The U.S. benchmark price averaged US$3.26 per million Btu in December, about one-fifth of the average Japanese LNG import price that month, according to data compiled by Bloomberg.
Brent traded as high as US$123.20 a barrel today on the London-based ICE Futures Europe exchange, bringing its gain this year to 15% as the standoff over Iran’s nuclear program raised concern that supply will be disrupted.
Qatar typically tries to sign agreements at prices tied to crude on an energy-equivalent basis, Ibrahim Al Ibrahim, the Qatari emir’s economic adviser, told reporters at the February 9 RasGas signing in the capital, Doha. Neither RasGas nor its Asian buyers disclosed the pricing of their new contracts.
“The price is quite good,” Ibrahim said of the Korean agreement. “It’s way different from the prices in other markets. The gap is huge between the Far East and Europe and, of course, if you put in the U.S., it’s even bigger.”
The RasGas agreements, Qatar’s first multi-decade pacts with Asian buyers since 2008, coincide with a 10 percent cut in long-term prices by Russia’s OAO Gazprom, the world’s biggest gas producer, to its pipeline customers in Europe.
“What we are hearing is there is pressure on the long- dated pricing of LNG contracts, and it’s possible that Qatar is looking at securing long-term offtake in anticipation of reduced spot prices because of a glut five years down the line,” Neil Beveridge, a senior analyst at Bernstein in Hong Kong, said by phone February 29. “The sense is that the current spot market remains tight but pricing is coming off on the longer-dated contracts.”
Global supply of LNG, natural gas chilled to a liquid for ease of transport, will swell by as much as 250 million tons during the next eight years from Australia, North America and Africa, according to Bernstein. World capacity was 270 million tons in 2011, according to the International Energy Agency.
Qatar raised annual LNG capacity to 77 million tons last year with the start of its 14th liquefaction plant. The country originally earmarked as much as one-third of its supplies to North America before diverting some to Asia.
Australia is developing eight LNG ventures to take advantage of growing Asian demand for less-polluting alternatives to coal. The projects will add a combined 70 million tons a year of capacity, according to Beveridge. Chevron Corp., Royal Dutch Shell Plc, Woodside Petroleum Ltd., ConocoPhillips and BG Group Plc (BG/) are among those building export plants to supply countries including China.
The U.S. will be able to produce about 45 million tons of LNG a year by 2020, according to BG, the U.K.’s third-largest producer. The U.S. exported less than 500,000 tons in 2010, according to U.S. Energy Department data. The U.S. would overtake Qatar as the world’s top LNG producer if planned projects are built, Bros said in a report today.
GAIL India Ltd. (GAIL), India’s biggest natural-gas distributor, said in December it agreed to import 3.5 million tons from Cheniere Energy Partners LP in Louisiana.
“U.S. LNG is a game-changer, in that Qatar is effectively worried that its oil-linked formula could be at risk after 2020,” Bros said last month.
Rising U.S. gas output is attracting Qatari interest in investing in the resource.
Chesapeake Energy Corp. (CHK), the second-largest U.S. natural gas producer after Exxon Mobil Corp., has fielded inquiries this year from the emirate about investing in onshore North American gas projects, Aubrey McClendon, chief executive officer of the Oklahoma City-based company, said yesterday in an interview.
Qatar Petroleum International, the foreign investment unit of the state-run energy company, may invest in North American shale gas with an international oil company, Chief Executive Officer Nasser al-Jaidah said December 7.
Rising demand in Asia may still soak up some of the additional supply, according to Beveridge. Japan, the world’s biggest LNG consumer, bought record volumes in January after most of its atomic reactors closed following the March 11 disaster at the Fukushima Dai-Ichi nuclear plant, forcing power utilities to increase their dependence on fossil fuels.
Japanese import prices for LNG climbed 51% last year to US$16.66 per million Btu at the end of December, according to LNG Japan Corp. data compiled by Bloomberg. U.S. gas futures declined 32 percent over the same period on the New York Mercantile Exchange.
Yemen LNG Co. said last month it has redeployed fuel exports to Asia amid weaker demand in the U.S. The Sana’a, Yemen-based company will supply Korea Gas with 20 cargoes a year through 2014, it said in an e-mailed statement February 18.
“New centers of LNG supplies are emerging with the rise of unconventional gas and new exploration in North America and East Africa, and the world could be faced with a new global LNG glut by 2018,” Beveridge said.